CSBG IM #119 Guidance for Implementation of Making Work Pay Tax Credit

Publication Date: May 1, 2012
Current as of:

 

COMMUNITY SERVICES BLOCK GRANT PROGRAM

Information Memorandum

U.S. Department of Health and Human Services
Administration for Children and Families
Office of Community Services
Division of State Assistance
370 L'Enfant Promenade, S.W.
Washington, D.C. 20447

 

Transmittal No. 119

Date: February 17, 2010

 

TO:

States, U.S. Territories and Tribal Organizations

SUBJECT:

Guidance for Implementation of Making Work Pay Tax Credit

RELATED REFERENCES:

The statutory language in Section 1001 of the ARRA:

(c) REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.—Any credit or refund allowed or made to any individual by reason of section 36A of the Internal Revenue Code of 1986 (as added by this section) or by reason of subsection (b) of this section shall not be taken into account as income and shall not be taken into account as resources for the month of receipt and the following 2 months, for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds.

PURPOSE:

To provide guidance for executing actions involving the Making Work Pay Tax Credit.

BACKGROUND:

The American Recovery and Reinvestment Act (ARRA) includes a temporary refundable tax credit called the Making Work Pay (MWP) credit. For those individuals who receive a paycheck and are subject to income tax withholding, this credit was designed to reduce tax withholding and to give workers higher take-home pay. Taxpayers who do not have income taxes withheld by an employer during the year can receive the credit as a lump sum refundable credit when they file their 2009 income tax returns in 2010.

It is important to note that families will begin to file their income tax returns soon and many families will begin to receive refunds representing the MWP credit and other refundable credits as early as February 2010. To comply with ARRA, States and grantees will need to act quickly to ensure, at a minimum, that agency staff is prepared to implement the required MWP credit exclusions.

The goal of the ARRA provision was to ensure that the MWP credit did not jeopardize an individual’s or family’s eligibility for means-tested benefits. This is particularly important during a recession when many families who were previously working are turning to means-tested programs for the first time.

ARRA requires programs funded in whole or in part, with federal funds, to disregard the MWP credit as income, and to disregard the credit as a resource in the month received and the following two months. This disregard applies to both new applicants and ongoing recipients. Note that not every program has an asset limit and for those with asset limits, grantees may have discretion under current statutory and regulatory authority to fashion their own disregards, so they could choose to exclude the MWP credit for a longer period of time or altogether. At minimum, the MWP payment must be disregarded as income and must be disregarded as a resource in the month of receipt and the following two months.

Minimum Statutory Requirements for Disregard of the Making Work Pay Credit
If a grantee does not provide for a broader or longer exclusion of one or more tax credits and tax refunds, then in order to implement the Making Work Pay disregard:

  • For income purposes - a grantee’s application and ongoing eligibility process needs to ensure that it does not include consideration of any MWP credit received by the applicant or recipient.
  • For resource purposes - probably the simplest way to implement this provision is to ask applicants or recipients whose eligibility is being determined; who may be over the asset limit for a program; and, whether they have received a tax refund in the past three months. If the applicant or recipient has received a tax refund, it will be necessary to determine whether the refund included the MWP credit and, if so, how much of the refund should be attributed to the MWP credit and should be disregarded when determining asset eligibility.

Option to Provide a More Expansive Disregard of the Making Work Pay Credit
If federal law does not require that a program have an asset limit, or allows State or grantee discretion in specifying the terms of its asset limit, the State or grantee may choose to provide an exclusion of the Making Work Pay Credit for more than three months. For example, the State or grantee might choose to provide a twelve-month exclusion from resources, along with the statutorily-required disregard from income.

Option to Disregard Other Tax Credits and Refunds
Families that worked in 2009 may receive tax refunds that include not only the MWP credit, but also the EITC and the Child Tax Credit — both of which were expanded temporarily in the ARRA legislation as a way of directing more help to families during the recession. In some cases, families could also be receiving the refundable American Opportunity Tax Credit for certain educational costs. In addition, in some circumstances, a family may have had excess taxes withheld from their pay, so that they are also receiving a refund of excess taxes paid. At minimum, the State or grantee must disregard the federal Child Tax Credit as income and as a resource in the month of receipt and the following month.

The Internal Revenue Code does not specify minimum disregards applicable to ACF programs for Earned Income Tax Credit refunds or for the American Opportunity Tax Credit. But, in addition to complying with applicable federal minimum disregards, a State or grantee might choose to establish, for example, a 12-month disregard from income and resource consideration for all refundable credits and refunds. Doing so could be administratively simpler for States, grantees, and families. A State or grantee could elect to do this if its governing federal law allows discretion in determining when amounts received count as income, whether to have an asset limit, and which exclusions to provide from its asset limit. A State or grantee might choose to do so for 2010 or on an ongoing basis.

Internal Revenue Service information regarding the Making Work Pay Tax Credit can be found at the following website address: http://www.irs.gov

__/s/________________
Yolanda J. Butler, Ph.D.
Acting Director
Office of Community Services